Analysts: Microsoft's Surface Tablet Poses No Threat to Apple's iPad

By Gregg Keizer,
20-Jun-2012

Price may be major stumbling block to real competition, but Windows tablet could be enterprise winner, say experts.

[The Surface] will have some legs in the enterprise -- it will be a lot easier of a sell there with compatibility through Office, it's probably more manageable, and it comes from a vendor that IT is more comfortable withEzra Gottheil Technology Business Research

Apple has little to worry about from Microsoft's tradition-breaking move to sell its own tablets, analysts said today.

According to IDC, the iPad will account for 63% of all tablets shipped in 2012.

"I don't think Surface is a big hurt on the iPad," said Ezra Gottheil of Technology Business Research. "[The Surface] will have some legs in the enterprise -- it will be a lot easier of a sell there with compatibility through Office, it's probably more manageable, and it comes from a vendor that IT is more comfortable with. But it won't be a major impact on the iPad."

Others agreed.

"Microsoft's tablet-related products may have a place in certain parts of the enterprise world that require Windows-based solutions [but] we found little in yesterday's presentation that would convince us that a consumer would prefer Surface over an iPad," said Brian White of Topeka Capital Markets, in a note to clients today.

Yesterday, Microsoft stepped over a line it had never crossed in its 37-year history: It said it had designed, and would sell, what is essentially a computer, in the process eliminating the middleman -- OEM partners like Dell, Hewlett-Packard, Lenovo and others -- from the Windows food chain.

Radical though that was -- one analyst yesterday said it was the boldest move he'd ever seen by a technology company -- it won't be enough to unseat Apple from the top tablet spot.

"While we believe Surface will appeal to users looking for a Windows tablet capable of running Windows-based productivity software, we do not see it altering competitive dynamics in the tablet market," said Brian Marshall, an analyst with ISI Group, in an email Monday.

The Surface will probably be too pricy; starts out behind the iPad in critical component specs, especially the display; and most importantly, is a copy-cat that may lack sufficiently-compelling reasons for bypassing the original.

"This absolutely begs the question," said Gottheil. "If the Surface is going head-to-head with the iPad, why not just buy an iPad?"

Much depends on what prices Microsoft puts on the Surface, something the company declined to disclose yesterday. Instead, it made vague references to competitive pricing, which many suspect hinted at numbers too high to entice customers, consumers especially, from opting for an iPad, a true notebook or a cheaper Android tablet.

Monday, Microsoft said the consumer-oriented Windows RT Surface would be "competitive with a comparable ARM tablet," while the heavier Windows 8 Pro model would be priced similarly to "an Intel ultrabook-class PC."

Microsoft stepped over a line it had never crossed in its 37-year history: It said it had designed, and would sell, what is essentially a computer, in the process eliminating the middleman -- OEM partners like Dell, Hewlett-Packard, Lenovo and others -- from the Windows food chain.

But that leaves enough room for a broad price range.

Microsoft on Monday unveiled a product aimed directly at Apple's iPad, releasing a tablet called Surface. The new tablet will be available in two versions: One with the Windows 8 Pro operating system and one based on Windows RT.

If Microsoft meant the iPad as the comparable ARM tablet, the Windows RT Surface might be priced at $599 (for the 32GB) or $699 (for the 64GB), the prices Apple charges for similarly-configured iPads. Meanwhile, a Windows 8 Pro tablet would cost at least $700, more likely $800-$900 and up, said Gottheil, citing current prices for ultrabooks.

The latter strays dangerously close to not only Windows-based ultrabooks, but also the $999 price of Apple's entry-level MacBook Air, a thin-and-light laptop that, like the Surface, features 64GB of flash-based storage, an Intel "Ivy Bridge" i5 processor; and a screen close enough in size not to matter (11.6-in. versus the 10.6-in. in the Surface).

And the MacBook Air is just four ounces heavier than the Windows 8 Pro Surface.

Only if Microsoft drew the Windows RT Surface's price from Android tablets would it post a number lower than the iPad. "If they go head-to-head with Android [tablets], they need to come in at no more than $300," said Gottheil.

Other experts stated that $400 -- a dollar above what Apple charges for 2011's 16GB iPad 2 -- should be the price of the ARM-powered Surface.

But analysts thought that Microsoft's late-comer status would force it to undercut prices of current players to gain any traction among consumers, though not necessarily businesses.

"Consumers will require a healthy discount for Surface versus an iPad, something we believe will prove difficult given the new iPad starts at just $499 and the iPad 2 starts at a price of just $399," White said.

A possible complication of Microsoft's calculations would be Apple's introduction of a long-rumored "iPad Mini," a scaled-down iOS tablet featuring a 7-in. display. "[That could be] released this September at a price point of $250-$300, providing a more cost competitive product for Apple and opening up a new market segment," added White.

Only in one fashion did Microsoft effectively compete with Apple yesterday: The way it introduced the Surface.

A look at how the market-leading iPad shapes up against the new Microsoft Surface

Several, including some who attended the Los Angeles press conference, pointed out similarities in Microsoft's presentation, from pacing and the use of video to multiple executives and even a designer touting different aspects. Those are typical of a Apple product launch.

"That was an Apple-type presentation," said Michael Gartenberg, an analyst with Gartner, in an interview Monday. "It was weird. It was like Ballmer was channeling Steve Jobs."

Microsoft CEO Steve Ballmer kicked off the press conference, a traditional Jobs' chore -- and one Apple's current CEO Tim Cook replicated at this month's Worldwide Developers Conference -- then handed the bulk of the event over to a succession of executives before wrapping it up.

"There's not anything wrong in learning from successful competitors," said Gottheil. "Even companies far outside the tech world have learned from Apple. You tell a story, show some passion and pay attention to the details of how you tell the story. [Apple's] formula is so good that even the charismatic-inhibited, like [Tim] Cook, can do it."

And apparently so can the usually-emotive Ballmer, who was uncharacteristically low-key -- another trait of Apple's product announcements.

But Gottheil rejected the idea fronted by others that the Surface unveiling was a forerunner of a totally revamped Microsoft, one which would duplicate every aspect of Apple, not just its launch template. Those pundits have speculated that Microsoft will mimic Apple's obsessiveness about control, and will want to rule all parts of its ecosystem, from the hardware to the software to content to the cloud.

"I see [the Surface] as priming the pump," said Gottheil. "Microsoft wants to establish the viability of the Windows tablet and get a foothold. But it doesn't want to be in an Apple situation where it does everything. It likes the OEM model, and it doesn't want to kill off the very important licensing business."

Microsoft has not committed to a ship date for either the Windows RT or Windows 8 Pro Surface tablets, but has promised that the former would debut around the same time as the next Windows' release -- most expect that in September or October -- and said the latter would follow 90 days later.

Source: Computerworld (US)

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